Euro gains as ECB's Lagarde says not targeting exchange rate

NEW YORK (Reuters) – The euro raced to a one-week high against the dollar on Thursday, after European Central Bank President Christine Lagarde said that while the ECB is watching the exchange rate, it is not a monetary policy tool.

That suggested that the ECB was unlikely to undertake measures to weaken the euro despite its recent gains, giving motivation for traders to further take the single euro zone currency higher.

The ECB also held interest rates steady, as expected.

The euro rose as high as $1.1917, a one-week peak, and was last up 0.8% at $1.1903. The euro’s high in 2020 was $1.2014, surging more than 6% so far this year.

A strong euro though tends to hurt an export-dependent economy like the euro zone, raising concerns from some ECB officials such as chief economist Philip Lane, who said the exchange rate mattered to monetary policy.

“We do not target the exchange rate,” Lagarde said during a news conference, adding, however, that the central bank was monitoring the situation.

“Our mandate is price stability, and clearly to the extent that appreciation of the euro exercises negative pressure on prices, we have to monitor carefully such a matter,” she explained.

But just as Lagarde was starting her press conference, Bloomberg news came out with a report, citing ECB sources, saying there was no need to overreact to the euro’s gains.

Traders said the Bloomberg report caused a spike in the euro.

“The official statement suggests the ECB is watching the exchange rate because of its impact on inflation, which is pretty standard,” said Ranko Berich, head of market analysis, at Monex Europe in London.

“But as Lagarde said, the exchange rate is not a policy call. The Bloomberg report was much clearer than the statement,” Berich said.

The ECB also raised the growth forecast for this year, although projections for next year and 2022 remained little changed. The new forecast predicts a contraction of -8.0% in 2020, compared with its previous estimate of a -8.7% fall.

“At the margin, the ECB comments and the press conference were slightly hawkish than expected,” Berich said.

In late morning trading, the dollar index fell 0.4% to 92.837, after hitting a four-week high the previous session.

The dollar slipped after data showed initial claims for state unemployment benefits totaled a seasonally adjusted 884,000 for the week ended Sept. 5, matching the number of applications received in the prior week, the Labor Department said on Thursday. Economists polled by Reuters had forecast 846,000 applications in the latest week.

U.S. producer prices were also better than expected, with gains of 0.3% for the headline and 0.4% for the core figure.

Against the yen, the dollar was little changed at 106.16 yen.

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